Will the 2010 Health Law Cut the Deficit or Add to It?

In a new study, Chuck Blahous, who is a public trustee for Medicare and Social Security, concludes that the 2010 health law will add at least $340 billion to the federal deficit from 2012-2021. This is contrary to the official estimates by the Congressional Budget Office, which initially figured the Affordable Care Act would reduce the deficit by about $132 billion from 2012-2019.

Who’s right? Who knows? In truth, unknowable and unpredictable changes in overall health costs will dwarf the variation between Chuck’s estimate and CBOs.

However, Chuck makes some important points in his analysis. One, which TaxVox has written about recently as well, is the potential double-counting of increased Medicare payroll taxes. The 2010 law raises the Medicare levy by 0.9 percent for high-income workers. But, due to CBO scoring conventions, the money it generates appears to both make the Medicare Hospital Insurance (HI) Trust Fund appear more solvent and reduce the general fund deficit.

It can’t simultaneously do both, as Chuck correctly notes. In reality, if the extra tax goes to the general fund to “pay for” health reform, Medicare would be required to reduce its hospital benefits, absent some other new funding source. Chuck argues Medicare would cut benefits. CBO assumes it would not.

Btw, Chuck and TaxVox are hardly the only ones to have raised this issue. Medicare actuary Rick Foster, who is well-known in Washington for calling ‘em as he sees ‘em, has been making exactly the same point since even before the law passed. My Tax Policy Center colleague Donald Marron, a former CBO director, blogged about it all back in 2009. And CBO itself has been upfront about the oddities of this scoring issue.

For a different take on this, check out Paul Van de Water’s blog at the Center on Budget and Policy Priorities.

Some of Chuck’s other assumptions are more controversial. For instance, he projects more people will participate in subsidized health exchanges than CBO estimates, and that Congress will hike those subsidies more than CBO projects in future years. He also discounts anticipated revenues from the “Cadillac tax” on high-value health insurance plans by assuming Congress will roll back this levy before it is ever imposed.

He may be right, of course. But he is merely guessing. CBO at least has the anchor of the actual law to rely on. Chuck is basically expressing an opinion.

And keep in mind that while the spread between the two projections represents real money, it is margin-of-error stuff when it comes to the size of the federal budget and total health spending.

Is Chuck’s analysis valuable? It is, if only to highlight the uncertainty in these estimates (that CBO has already acknowledged) and to remind us all about the dangers of double-counting.

Predictably, the politicians are ranting about the sign: “The law will lower the deficit…No, it won’t. Yes, it will….” But, as usual, they are missing the real message.

Posts and Comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.